Will the pensions strike really cost the country £500m?

Next week up to 2.6m state employeess will strike over pensions and ministers today claimed it will cost the economy £500m. Is this a fair prediction?
Polly Curtis, with your help, finds out. Get in touch below the line, email your views to
polly.curtis@guardian.co.uk or tweet
@pollycurtis

11.21am:Francis Maude, the cabinet office minister at the heart of the torrid negotiations with the unions over public sector pensions today claimed that next week's strike could cost £500m. He told a briefing of journalists in Whitehall that if the worst case in their scenario planning happens and all 2.6m state employees who were balloted walk out on Wednesday, it could cost the economy and even translate into job cuts:

It will have a massive impact on schools. That is the biggest impact on the economy because it effects people's ability to go to work themselves... Exactly what that relationship is is very hard to anticipate but if we lose a big chunk of output it is hard to see how that does not translate into fewer jobs.

What will the real effect be?

I've asked the Treasury press office for the detailed workings on how they came to these figures and I'm told they are currently in discussion with the in-house economists about what workings they can publish. It was confirmed that they have done modelling and the £500m figure includes the cost to the public sector and the knock-on costs for the private sector. They have factored in the cost of parents having to take time off work.

The Treasury has promised to come back to me with more detail as soon as they can. In the meantime do you know of any evidence or method for calculating the cost of a strike? Are there reliable figures for previous industrial action? Get in touch below the line, email me at polly.curtis@guardian.co.uk or tweet @pollycurtis.

11.38am: There is some speculation that one way to calculate the cost of the strike would be to compare it the cost of a bank holiday and the prime minister's official spokesman was asked about it at this morning's regular briefing.

The cost of a bank holiday is put at anything from £1.2bn by the Trades Union Congress (who have called for an extra bank holiday) to £6bn by the Confederation of British Industry (who don't want their members to lose valuable working hours). Channel Four's FactCheck blog looked at the cost of bank holidays here.

Lucy Manning, ITV's political correspondent tweeted following the Number 10 briefing:

@No 10 says lost strike output not same as Bank hol cos then people spending. PMs spksmn said not sensible suggestion re making it a bank hol

I used to be principal of a fairly large FE College. We were pushing through some unpopular contract changes and had a number of one-day strikes. We saved about £40,000 per day on unpaid wages and salaries. Last week I was told by a member of the Bury MBC executive group ( Labour control) that the borough would save £124,000 on a one day strike ( again for unpaid wages). If you aggregate the gain from unpaid wages across the country it must come to probably tens of millions. Do the government figures you quote include the money saved in this way?

Here are my back-of-an-envelope workings: the average public sector salary is £22,902 (ONS figures), if you divide that by 365 days the government is saving £62.75 for every striking worker or £163,137,534 for 2.6m. It might have been better to divide by the number of working days, but these vary from job to job and the profile of workers who are striking might not match the average salary. I do hope the government's workings are better than mine.

I've asked the Treasury whether they are factoring in any savings to the £500m figure.

12.33pm:

The Treasury's explanation

The Treasury press office has just talked me through their workings. They aren't publishing anything, but this is what they told me:

Treasury in-house economists have worked on two possible models of what might happen in the case of next week's strikes.

The first model they did was based on 900,000 people in the public sector striking. That is the number who voted in the ballots. This would reduce the public sector workforce by 15%. The knock on effect they have factored in is the closure of schools and the number of parents who will therefore not be able to work. Based on the last strike, which is a conservative assumption they say, two thirds of schools closed or part closed. They think this means hours worked in the private sector reduce by 3-4%. They say a 15% drop in the workforce in the public sector and 3-4% drop in the private sector will cost 280m. This is that percentage reduction in the normal daily output for the respective sectors.

The second model, which came up with the £500m figure, scales up the first model to calculate what would happen if the entire balloted membership walked out. This is estimated between 2.5 and 3m people, the Treasury says. It is estimate that it would "approximately" double the cost to £560m (they say the minister said "at least" £500m in the briefing). The scaling up only doubles the figure because there is a limit to the number of schools that can close; two thirds were affect last time so there's only another third that could close or reduce its classes.

The spokesman (a civil servant rather than political adviser) said:

This is Treasury economic analysis. The Treasury has a number of economists and they have calculated this. This is a reasonable worst case scenario. We don't know what the impact of the strikes will be. The key thing is that the unions are asking their entire membership to go on strike and in that scenario it would have a significant impact on the economy. We are setting out that estimate and saying this is the wrong time to be going on strike during negotiations and the economy recovery. This figure illustrates that.

I asked him whether they had factored in any money saved through pay docked from striking workers and he said:

We haven't made that analysis. You can work that out after you know how many people have gone on strike. There will be savings on pay for those people who aren't paid because they have chosen to go on strike. Those savings we have not determined.

A couple of quick thoughts:

• What other economic effects have they left out by solely focussing on the impact of schools?

• How have they calculated that two thirds of schools closing would mean 3-4% of parents not working? Do they take into account grandparents stepping in, parents pooling together to set up day creches and childminders? A reader emails to suggest that many could opt to use a day of leave to cover the gap.

• What would the figure be if you factored in the savings from wages and why won't they project this if they will project the costs?

• The figures suggest that they are anticipating that every state school will be affected. Have parents been warned?

12.50pm: David Anderson, president of the University and Colleges Union in Glasgow, writes in with a slightly more thorough analysis of the savings in staff wages during the strike. He writes:

Not sure how you would go about measuring the cost of a strike - but the impact of 2.6m public sector workers giving up a days pay counts as a potential saving to employers.

ONS give the average public sector salary as £28802One day strike deduction is around 1/260 or £108£108 X 2.6 million striking = £281 million

Now the employers would say that it costs them more to make contingency plans, but I would like to see there working.

My colleague James Ball, a data journalist, points out that the most simple way of calculating the savings in the govenrment's model is to deduct the 15% of lost public sector working hours from the daily public sector pay bill which is currently tracking down. Does anyone know a source for that?

1.11pm: James Ball writes:

According to the IFS, in 2009 the total public sector pay bill (excluding public corporations) was £168bn. Assuming that splits across 260 working days each year (five days a week, 52 weeks – so this is generous as it excludes holiday), that gives us a pay bill of £646 million per day.

Scenario A was 900k going on strike. That's public pay representing 15% of the workforce, so they would save £96.9m from the daily bill.

Scenario B was 2.5m to 3m striking. If we use 2.7m that means they save £291m in pay. So:

Under scenario A the net cost would be the £280m calculated by the treasury minus the 97m saved by the government in wages = 183m.

Under scenario B that would be £560m - £291m = 269m.

A couple of thoughts:

• Do we know whether people who don't take part in ballots tend to strike anyway?

• The savings in wages are directly to the public sector – where does that money go? The losses are to the wider economy but savings to the public purse.

2.00pm: The Conservative party has just issued a statement relating to the cost of the strikes and calling for Ed Miliband to challenge the unions' actions.

It says:

Today Ed Miliband failed once again when challenged to condemn next week's planned strike, which the Government has today revealed will cost the economy £500 million.

I've just checked with the Treasury and they confirm they are only suggesting that it could cost the country £500m.

3.48pm: My colleague Heather Stewert has just been speaking with Jonathan Portes, director of the National Institute of Economic and Social Research. He described Maude's claim that the strike could trigger job cuts as "economic nonsense".

Jonathan Portes

There is no direct reason why a strike next week will translate into job losses. Clearly, a prolonged period of industrial action which had a medium term damaging effect on the economy would be different.

5.15pm:

Summary

The strikes will clearly cost the country millions in lost working hours and public sector productivity but it will also create a windfall for councils, schools and the NHS who won't have to pay striking employees for the day.

The Treasury modelling of the economic costs of next Wednesday's strikes suggested that in the "worst case scenario" it could cost the country £560m (not the neater £500m figure highlighted by ministers). But the model is weak and the explanation patchy. The Treasury economists assumes that either that the number of people who were balloted will strike or the number who voted will, but whether people join the strike is more complicated than that. It makes an unknown assumption about the choices people will make to provide childcare for children whose schools go on strike. Many parents will pool childcare, pay extra to childminders, take a day off work or, as the prime minister has suggested, take their child to work. It's not clear what ratio of working days to children affected was used.

The model only considers the economic fall-out of school closures ignoring any other possible effects. There is no logic to the minister's suggestion that the strike could lead to job losses or their failure to factor in the savings of a day's wages in the public sector. We have shown this is relatively easy to calculate to a degree that is as reliable as the rest of the government's estimates on strike costs. Without this factored in the figures, already weak, are entirely partial. The Conservative party are misleading in their portrayal of the government figures as an unequivocal confirmation that the strikes "will" cost £500m when the treasury economists say that it only "could" cost that much.